Notes on “how to buy gold and silver”
- How much gold should you own
- Six months...
- One gold vendor to avoid at all costs
"How much gold should a person buy, as a percentage of their wealth?"
Janet C wrote in to ask this question after reading last week's articles "A gold and silver buyer's guide" and "A gold and silver buyer's guide part II."
I've heard some people say that you should own 5% and sometimes 10% of your net worth in precious metals.
I wouldn't put such a hard and fast number on it - instead I'll give you a simple metric that will help you decide if you have the bare minimum of gold or silver that you might need in a worst-case-scenario.
After all, we're not buying gold and silver necessarily because we 100% believe that a currency crisis is inevitable, or that our dollars will be rendered worthless, no ifs ands or buts.
I buy gold and silver because of the increasing likelihood of that event, but I'm not absolutely certain that such an event will come to pass. If I was absolutely certain, then yes, I might transfer 70-80% of my net worth into gold, silver, durable goods and potable water.
I won't tell you the exact amount of gold and silver I own, but I will tell you a simple metric that I've told my family and close friends to use.
I don't know if more than one or two of them have listened, but here's my rule of thumb:
Look at your budget for your monthly living expenses. Stuff like food, water, transportation, clothes, heating oil, etc. Add it all up to find your average monthly cost of living. Multiply that number by six, and then buy a mix of gold and silver bullion equal to that six month estimated cost.
Why six?
Assume we enter into a real life, 'as seen on TV' currency crisis, with food riots and long lines at the gas station, wheelbarrows filled with cash to buy a loaf of bread, etc. In this circumstance I estimate that at the VERY least, you'll want to have enough gold and silver to cover six months' worth of your living expenses.
Six months would give you enough time to figure out the next step - whether that's moving in with relatives across the country, or finding a new home in a different area - even moving overseas, or starting a large garden or small business that would be in demand in the aftermath of a currency crisis.
Hopefully, six months of living expenses isn't more than 5% of your net worth - it's probably also an affordable amount to get started with.
Anything more than that six month supply is extra security for your bottom dollars.
I wouldn't advise putting more than 30% of your net worth in gold or silver. That's way too many of your eggs in one basket.
Another question from the mailbag...
Tom H wrote in to ask:
"Before I purchase anymore gold coins (20 Franc Swiss)... do you have any concern about Goldline?"
I'm going to bash Goldline - but first, Tom brings up another type of bullion I didn't mention last week...
I actually like the 20 Franc Swiss coins. They're not quite as recognizable as the British Sovereign, but they're a nice alternative. They have an interesting history as well. Historically, these 0.1867 ounce coins (a little less than 1/5 an ounce) were given as wedding gifts to newly married couples.
They're also attractive, and since they're no longer minted, they sell for a small numismatic premium above spot. They're not really very rare - just rarer than regular bullion. As I said last week, I don't really have any use for "rare" or numismatic coins. I buy coins for their bullion content and their recognizability.
As I said, these coins have a gold content of 0.1867 ounce - which would mean the gold content is worth about $250 at today's spot prices.
Right now, Goldline is selling this coin for over $425.
I won't even dignify this company by linking to their website. At the risk of getting sued by this firm - I think they give gold retailers a bad name - and I see absolutely no reason to do business with them.
The company I buy some of my gold from, Blanchard Online, sells this coin for $286.87.
That's about 16% over the current spot price of the gold - but that seems to be a competitive price for this semi-collector coin. I've seen it for a little bit lower, but not by much.
In Goldline's defense, I don't begrudge them their ability to sell bullion for whatever price they want. We don't need laws against this kind of operation. If you don't do your homework and shop around, then you will probably pay too much.
Caveat emptor - the latin for "buyer beware." It's a rule that applies to everything from a can of soup to gold bullion to a new home. Know the product that you're buying inside and out before you buy it, or you will inevitably pay more than you need to.
If you have anymore questions about gold or silver, please send it to editorial@resourceprospector.com.
Good investing,
Kevin McElroy
Editor
Resource Prospector
